Scottish civil servants are to start work on a ‘detailed prospectus’ for independence so the Scottish government can hold another referendum ‘when the Covid crisis has passed’, Nicola Sturgeon announcedearlier this month.
The irony of this – coming just days before theOffice for National Statistics reported that the percentage of Scots testing positive in a single week for Covid-19 equated to around one in 45 people – was lost on the First Minister. These things happen when you’re busy fighting to free your people from the tyranny of liberal democracy and free society in one of the richest places on earth.
Deputy First Minister John Swinney subsequently went further when hepromised a ‘financial prospectus’ on separation that will be ‘open and comprehensive and transparent’. Quite the challenge then for Scotland’s civil servants. Can they produce an honest prospectus on the realities of independence?
Whatever they come up with, it had better be an improvement on 2013’s Scotland’s Future, which turned out to be a fantastical piece of spin that failed to produce much needed hard analysis in key areas. Scotland’s projected fiscal position, for example, was relegated to one short section in the 650-page report. What lessons can be learned, and what should the new analysis include?
Any new report should have in-depth sections on trade, the border with England, deficit and debt, and currency. It should avoid pointless padding and banalities, which both the 2013 paper and the SNP’s updated version, its 2018 Growth Commission report, were guilty of (if only someone had said before that Scotland should aspire to increased productivity!). Crucially, any new paper should include detailed scenario analysis, which was a common feature of reports produced by the UK government on the build up to Brexit.
A useful benchmark might be the UK government’s November 2018 paper: EU Exit, Long-term economic analysis. It modelled the outcome of four scenarios, ranging from a no-deal Brexit to the then government’s preferred arrangement of an association agreement designed to limit trade friction outside the single market and customs union. Commendably, the paper was honest enough to show that any new arrangement would negatively impact British GDP compared to where it would be under continued EU membership.
A new Scottish civil service-produced paper should aim to be similarly robust and candid. It could present best-case and worst-case scenarios, modelling the economic impact of a smooth divorce in line with Scottish government-preferred timings as well as a non-amicable outcome based on a speedy and messy separation.
Importantly, such a paper, like the 2018 Brexit paper, will have to recognise there is no scenario in which Scotland can depart the UK without economic damage. All scenarios involve crystallising a large and unsustainable deficit by leaving the UK fiscal union, while Sturgeon’s government also plans to leave the formal sterling zone with a switch to a risky emerging market-style currency arrangement. These changes would happen overnight on secession day. Other changes that might or might not happen overnight, such as the loss of UK regulatory oversight across industry, will also have to be factored in.
It is inconceivable that this sort of momentous change, unprecedented for an advanced economy, can happen without inflicting serious damage on Scotland. This is the accepted view among respected economists, some of whom have warnedof the real risk of a crippling crisis after independence. Even professor Mark Blyth, who sits on the Scottish government’s own economic advisory council, said recently that if deconstructing 30 years of integration with Europe hurts, as per the UK and Brexit, then breaking apart a 300-year-old, much more integrated union will hurt even more. ‘It’s Brexit times ten,’ said Blyth.
That brings us to another crucial component of any upcoming civil service white paper: it must accept the high probability of a severe economic crisis in the months, or even weeks, after independence. It must outline how such a crisis will impact people day-to-day and what emergency measures might be needed in response.
The instigation of capital controls to stem a flood of currency abroad is one obvious possibility; you can picture the news interview with a wealthy Edinburgh resident just turned away from the border checkpoint at Berwick with a suitcase full of cash.
If the government is short of sterling to pay public sector wages and other liabilities, what emergency measures will be brought in to deal with that? The rapid introduction of a new Scottish currency so a Scottish central bank can start printing cash, perhaps? Or an appeal for emergency assistance from abroad? Which parts of the public sector will be given priority to keep functioning while others are closed to save money?
If Sturgeon is serious about producing an honest prospectus then answers to these questions and more will form part of the new white paper. The people of Scotland deserve it. Let’s have some project reality for a change.
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